In Pursuit of the Naked Short
Alexis Stokes, Texas State University
Journal of Law and Business 5/1 (Spring 2009)
This article explores the origins of naked short-selling litigation; considers
the failures of significant naked short-selling lawsuits in federal court;
surveys the obstacles erected collectively by constitutional standing requirements, the Federal Rules of Civil Procedure, the Private Securities Litigation Reform Act, brokerage firms, death spiral financiers, and the Depository Trust and Clearing Corporation; examines the efficacy of Regulation SHO, SEC rule 10b-21, and new FINRA rules; discusses recent state legislation and state court litigation; and identifies non-litigation options to curb naked short-selling. Ultimately, this article seeks to answer the question: If manipulative naked short-selling is more than a mythological scapegoat for
small cap failure, what remedies are, or should be, available?
PDF (62 Pages): Article In Pursuit of the Naked Short
The Death of a Thousand Cuts
Sanity Check via Wayback, 2 February 2006
During my undergraduate studies, I read of an historical method of execution known as the Death of a Thousand Cuts. I have come to see that as a metaphor for how guerrilla wars (like ours) are won and lost.
Whether any of us have fully realized it or not, we have been engaged by an insidious enemy whose sole desire was to steal what was not theirs from others they viewed as their inferiors, rather than earn it legitimately. When a person was executed by the infliction of a thousand small cuts, the pain was enormous, eventually killing the subject by shock and loss of blood, but very, very slowly.
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Short Selling, Death Spiral Convertibles, and the Profitability of Stock Manipulation
John D. Finnerty
Fordham University, 31 March 2005
The SEC recently adopted Regulation SHO to tighten restrictions on short selling and curb abusive short sales, including naked shorting masquerading as routine fails to deliver. This paper models market equilibrium when short selling is permitted and contrasts the equilibrium with and without manipulators among the short sellers. I explain how naked short selling can routinely occur within the securities clearing system in the United States and characterize its potentially severe market impact. I show how a recent securities innovation called floating-price convertible securities can resolve the unraveling problem and enable manipulative short selling to intensify.
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